Ross White wants to reconsider his decision of buying the brackets and is considering making the brackets in-house. He has determined that setup costs would be $25 in machinist time and lost production time, and 50 brackets could be produced in a day once the machine has been set up. Ross estimates that the cost (including labor time and materials) of producing one bracket would be $14.80. The holding cost would be 10% of this cost.
(a) What is the daily demand rate?
(b) What is the optimal production quantity?
(c) How long will it take to produce the optimal quantity? How much inventory is sold during this time?
(d) If Ross uses the optimal production quantity, what would be the maximum inventory level? What would be the average inventory level? What is the annual holding cost?
Answers: 3
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